<PAGE>
 
                      SECURITIES AND EXCHANGE COMMISSION
                             Washington, DC 20549

                        ------------------------------ 

                                   FORM 10-K

                       FOR ANNUAL AND TRANSITION REPORTS
                    PURSUANT TO SECTIONS 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934


(Mark One)
[X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934

      For the fiscal year ended March 31, 1997

                                      OR

[_]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

      For the transition period from ________ to _______

                        Commission file number 0-22-309

                          ASI SOLUTIONS INCORPORATED
            (Exact name of registrant as specified in its charter)

                Delaware                                  13-3903237
       (State or Other Jurisdiction of      (I.R.S. Employer Identification No.)
       Incorporation or Organization)


       780 Third Avenue, New York, New York                 10017
     (Address of Principal Executive Offices)             (Zip Code)


      Registrant's telephone number, including area code: (212) 319-8400

                     ------------------------------------

          Securities registered pursuant to Section 12(b) of the Act:
                                     None

          Securities registered pursuant to Section 12(g) of the Act:

                                                   Name of Each Exchange
            Title of Each Class                     on Which Registered
            -------------------                     -------------------
                                            
    Common Stock, par value $0.01 per share        Nasdaq National Market


          Indicate by check mark whether the registrant:  (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes       No X
                                               ---     ---

          Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.  [X]

          The aggregate market value of the voting stock of the registrant held
by non-affiliates of the registrant on June 17, 1997 was $22,277,230.

          The number of shares of the registrant's Common Stock, par value $0.01
per share, outstanding on June 17, 1997 was 6,379,624.

                      DOCUMENTS INCORPORATED BY REFERENCE

                                     None
<PAGE>
 
                                    PART I


     ITEM 1.  BUSINESS

     Overview

            ASI Solutions Incorporated (the "Company") is a leading national
     provider of a comprehensive range of human resources outsourcing services
     for large organizations seeking to hire, train and develop a higher
     quality, more effective workforce.  The Company's services are organized
     into four core areas: assessment and selection, training and development,
     customer contact monitoring, and employment process administration. The
     Company, which has been providing human resources services for over 18
     years, believes that it is well positioned to be a single-source solution
     for organizations which outsource all or a portion of these human resources
     functions.

            The Company's assessment and selection services entail designing and
     implementing assessment processes for the selection of new hires and the
     evaluation of existing employees for advancement to positions of increased
     responsibility.  The Company's training and development services include
     live simulations, competency surveys for job skill evaluation, and
     situational exercises through which managers are introduced to techniques
     to improve their performance.  The Company's customer contact monitoring
     capability typically is used by clients which utilize inbound and outbound
     call centers for their customer contact service functions. The Company's
     employment process administration services address clients' recurring
     staffing needs resulting from regular employee turnover, as well as large-
     scale, rapid hiring needs for clients who do not have the in-house capacity
     to fulfill their needs.  In fiscal 1997, the Company processed 403,000
     candidates.

            The Company's clients are in a wide range of industries, including
     telecommunications, financial services, information technology, consumer
     products and healthcare, and are principally Fortune 500 companies for
     which customer service, sales and call center functions are critical
     components of their businesses.  Current customers include American Express
     Company, BellSouth Corporation, Citibank, N.A., Dean Witter Reynolds, Inc.,
     Georgia-Pacific Corporation, Hewlett-Packard Company, NYNEX Corporation,
     Oxford Health Plans, Inc., Pepsi-Cola Bottling Co., United Parcel Service
     of America, Inc. and Westinghouse Electric Corporation. The Company
     provides its services primarily through its two operations centers in
     Melville, New York, but also through its three regional offices and at
     clients' locations.

            The Company was founded in 1978 as a New York corporation by Bernard
     F. Reynolds, Eli Salig and Seymour Adler and was recently reorganized (the
     "Reorganization") in March 1996 as a Delaware holding company for its three
     subsidiaries, Assessment Solutions Incorporated ("Assessment Solutions"),
     Proudfoot Reports Incorporated ("Proudfoot") and C3 Solutions Incorporated
     ("C3").  On April 16, 1997, the Company completed its initial public
     offering (the "Offering") of 1,800,000 shares of the Company's common
     stock, par value $0.01 per share (the "Common Stock").

     Services

            The Company offers a wide range of human resources outsourcing
     services, including the sourcing, assessment, selection and training of new
     employees, and the assessment, selection, training and monitoring of
     existing employees.  The Company's services are organized into the
     following four core areas: assessment and selection, training and
     development, customer contact monitoring and employment process
     administration. The Company has assigned a vice president to each one of
     these core areas who is responsible for overseeing the design and assuring
     the quality of delivery of the services in each of these areas.

            Assessment and Selection. The Company designs and implements
     assessment processes for the selection of new hires and the evaluation of
     existing employees for positions of increased responsibility.  These
     assessment services have generally been provided for positions for which
     large numbers of staff are required and where effectiveness in the job
     directly impacts the business' revenue.  The Company may design either a
     single assessment instrument, which is delivered as part of an existing
     selection process, or the entire selection process 

<PAGE>
 
     itself, as required by the particular client. Assessment was the first
     service provided by the Company and has served as the foundation for
     several of its other services.

            On a typical engagement, the Company first custom designs the
     assessment tools necessary for an effective selection process.  This
     generally involves field research and job analysis to determine the
     critical components of the position and the key competencies required to
     execute it successfully.  Virtually all of the Company's assessment
     projects include the use of live simulations, either in person or over the
     telephone, in order to ensure that candidates possess the skill
     requirements for the position sought.  The Company has found that the use
     of job-specific, behavior-based techniques to determine a candidate's
     ability to actually perform the required tasks provides clients with a more
     accurate selection process and a more qualified workforce.  The Company's
     staff of professional industrial psychologists design each assessment
     instrument to meet the standards for test validity established by the
     Society for Industrial and Organizational Psychology, the Uniform
     Guidelines on Employee Selection Procedures issued by the federal
     government in 1978, as well as other professional standards.  The Company
     has applied its validation procedures to selection mechanisms for a wide
     variety of desired skills, including multilingual fluency, which the
     Company believes is becoming an increasingly important requirement for
     customer sales and service positions.

            Once the Company has designed and validated an assessment process,
     it then deploys a team of industrial psychologists and staff to implement
     the process in a manner best suited to the particular client and the type
     of position being filled.  Implementation can range from performing
     assessments telephonically from the Company's operations centers to
     deploying an entire staff to an on-site facility at the client to
     administer the selection process.  In either case, the Company typically
     uses its proprietary database and report generation software and customizes
     it to track the process and provide information to the client.  The Company
     has found that its assessment services are most appropriate for large-scale
     hiring needs.  However, once it has established and implemented an
     effective process, most businesses will retain the Company to provide these
     services on an ongoing basis to replace employees lost to attrition, as
     well as to hire additional employees as necessary for future growth.

            In addition to the assessment of prospective new hires, the Company
     also provides assessment services for the evaluation of existing employees
     for advancement to positions of increased responsibility.  The Company
     utilizes techniques similar to those for new hires in order to identify
     employees who possess the additional skills necessary for supervisory or
     management positions.  These techniques are also used to identify specific
     skills that require training and development intervention.  The Company's
     programs can be conducted on the telephone and through correspondence,
     electronic mail, and voicemail to replicate the manner in which a
     particular client's managers actually interact with their staff.  The
     programs are designed through extensive field research and job analysis and
     result in the delivery of development reports to each participant outlining
     areas for improvement.

            The Company also provides executive assessment services which
     involve the evaluation of executive applicants for general and functional
     management level positions.  The Company uses evaluation methods similar to
     those used for operational level employees, however, executive assessments
     generally involve more comprehensive procedures, including in-depth
     interviews and extensive testing.  The Company has recently begun expanding
     its executive assessment resources through staff additions and the leasing
     of additional space.

            Training and Development.  The Company's training and development
     services are an outgrowth of the Company's expertise in conducting live
     simulations for job skill evaluations.  A typical training and development
     program begins with the administration of competency evaluation surveys to
     a manager's colleagues which are analyzed by the Company's staff.
     Simulations are then developed in order to allow further testing by the
     Company's assessment professionals of the manager's relevant job skills.
     Based on the skills necessary for the particular functions performed by the
     manager, the Company develops a training program through which the manager
     is introduced to techniques for improving his or her performance.  Once the
     training program is completed, the manager is often put through another set
     of simulation exercises to determine how well the suggested improvements
     have been understood and adopted by the manager. The Company then provides
     each participant with a written development plan for further improvement.

                                       2

<PAGE>
 
            The Company's training and development services can also be used to
     assist in determining the potential for assigning existing employees to
     newly-created positions.  In one instance, a team of the Company's
     industrial psychologists worked with the client to define the new job
     requirements and design a telephone-based simulation to assess the
     employees' aptitude for the new function.  The Company's staff tested more
     than 2,500 customer service representatives over a three-month period.  The
     Company's simulation services are now used to screen over 3,000 prospective
     new hires for this client annually for both the sales and service
     positions.

            The Company believes a major opportunity for growth in its training
     and development services is in the area of remote management.  Through its
     client engagements, the Company has developed an understanding of the
     challenges inherent in managing large numbers of employees who are
     geographically dispersed.  As organizations downsize and flatten their
     organizational structures, executives are being asked to manage greater
     numbers of individuals.  In addition, due to the expanding geographical
     scope of many businesses and the growing use of telecommuting, managers are
     being forced to learn to communicate with, supervise and motivate their
     employees telephonically and by electronic mail, rather than through face-
     to-face meetings.

            Customer Contact Monitoring.  The Company provides monitoring
     services for clients who engage in large-scale use of call centers for
     their customer contact functions.  These call centers may consist of
     clients' employees or external vendors contracted by the client.  The
     establishment of call centers as the primary means by which major companies
     provide customer and sales related services has led to an increased demand
     for the Company's services from existing and potential clients.  As
     heightened domestic and global competition has led to the availability of
     an increased number of alternative or substitute products and services in
     many industries, the role of customer service has assumed a greater level
     of importance in terms of customer acquisition and retention.  As a
     consequence, companies are becoming increasingly more vigorous in their
     efforts to insure that customer service representatives employed by them or
     by vendors operating on their behalf are complying with their service
     quality standards.

            The Company's proprietary monitoring system can provide analyses and
     results of customer contact representatives' performance on an individual,
     team and call center basis, with comparisons against established service
     quality standards and group norms.  Over the course of a recent three-month
     pilot program, begun in October 1996 performed on behalf of a financial
     services client, the Company successfully monitored approximately 10,500
     calls remotely from its Melville, New York facility.

            Employment Process Administration.  The Company offers complete
     employment process administration services to clients who have large-scale
     hiring needs and who do not have the in-house capacity to fulfill their
     needs.  Employment processes provided by the Company typically include:
     advertising for and recruiting applicants; establishing automated
     telephonic voice response systems to screen prospective applicants;
     arranging for the physical facilities and equipment necessary for the pre-
     screening process; performing background checks on applicants; and
     conducting testing and simulations utilizing the Company's assessment
     expertise to select applicants for recommendation to the client.  The
     Company can also provide any of these services individually on an as needed
     basis.  In particular, the Company provides clients who have their own
     internal employment processes with ongoing background check services.

            To meet a client's needs, the Company is frequently asked to secure
     facilities and equipment, establish an interactive voice response system to
     screen prospective applicants, develop proprietary database and report
     generation software and staff a facility with test administrators and
     coordinators.  The Company has in the past scheduled and tested up to 500
     applicants per day, provided client access to the database for ongoing
     status reports and provided complete support up to the point of hire.

     Clients

            Historically, clients that provide in excess of 10% of the Company's
     revenues have changed from year to year.  The only customer accounting for
     more than 10% of the Company's revenues in fiscal 1997 was NYNEX
     Corporation.

                                       3

<PAGE>
 
     Competition

            The Company believes that the human resources industry is highly
     fragmented and that no one participant or small number of participants is
     dominant in the industry.  The principal competition encountered by the
     Company across the full range of services provided by the Company are human
     resources consulting firms, smaller companies who are specialized providers
     of certain services provided by the Company and consulting firms that are
     affiliated with large multinational accounting firms.  In addition, the
     human resources staffs of many large organizations which are existing or
     potential clients of the Company may already provide one or more of the
     basic services provided by the Company.  Key competitive factors include
     depth of industry knowledge, breadth of skills and services offered, level
     of experience, flexibility, responsiveness to customer requests and
     availability of resources to perform a wide variety of projects in a timely
     manner and price.

            In the area of assessment services, the Company encounters
     competition from large firms such as Aon Consulting, Development Dimensions
     International and Personnel Decisions International.  In the area of
     training and development, the Company competes with Aon Consulting,
     Development Dimensions International, The Center for Creative Leadership
     and TeleSpectrum Worldwide.  In the area of employment process
     administration, the Company competes with the human resources outsourcing
     departments within organizations such as Ernst & Young LLP, Fiserve, Inc.,
     Manpower Temporary Services and Norrell Corporation.  In the area of
     customer contact monitoring, the Company is presently unaware of any
     competitors.

     Intellectual Property and Other Proprietary Rights

            The Company primarily relies on a combination of copyright and
     trademark laws, trade secrets, confidentiality procedures and contractual
     provisions to protect its proprietary rights.  The Company generally enters
     into confidentiality agreements with its employees and clients that limit
     access to and distribution of its proprietary information.  The Company
     also believes that factors such as the technical and creative skills of its
     personnel, the Company's corporate knowledge and expertise in behavioral
     assessment and name recognition are essential to establishing and
     maintaining a leadership position in its industry.  The Company seeks to
     protect its database, documentation and other written materials under trade
     secret and copyright laws.

     Employees

            As of March 31, 1997, the Company employed 282 employees, of whom
     216 were full-time, and 66 were part-time.  Approximately 40% of the
     Company's employees have masters or doctoral degrees. Historically, the
     Company has generally been able to satisfy its hiring needs.  No assurance
     can be given, however, that this will continue to be the case, particularly
     if the Company experiences substantial future growth.  The inability of the
     Company to hire sufficient, qualified personnel to service its future
     growth would have a material adverse effect on the Company's business,
     financial condition and results of operations.

            The Company has no collective bargaining agreements or any similar
     union agreements and the Company has never experienced any work stoppages.
     The Company considers its relations with its employees to be good.


     ITEM 2.  PROPERTIES

            The Company's corporate headquarters is located in leased offices
     occupying approximately 11,300 square feet at 780 Third Avenue, New York,
     New York 10017.  The lease for this space will expire in 2006. The Company
     also leases office space at the following locations: Campbell, California;
     St. Louis, Missouri; and two offices in Melville, New York.  The terms of
     these leases expire between 1997 and 2006.  In May 1997, the Company leased
     23,000 square feet of space in Melville, New York, to expand the operations
     center. This lease expires in 2005 and increased the approximate total
     operations center square footage to 43,000 square feet.  The Company
     anticipates that as its business grows, it will establish more regional
     offices and continue to enlarge existing offices.

                                       4

<PAGE>
 
     ITEM 3.  LEGAL PROCEEDINGS

            From time-to-time the Company is involved in various legal
     proceedings that are incidental to the conduct of its business.  The
     Company is not involved in any pending or threatened legal proceedings
     which the Company believes could reasonably be expected to have a material
     adverse effect on the Company's financial condition or results of
     operations.


     ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

          On January 16, 1997, the holders of the Common Stock approved by
     unanimous written consent (1) an amended and restated Certificate of
     Incorporation which increased the number of authorized shares of Common
     Stock to 18,000,000 and provided for 2,000,000 shares of a new class of
     preferred stock, (2) the adoption of amended and restated By-Laws for the
     Company, (3) the Company's 1996 Employee Stock Purchase Plan, (4) the
     Company's 1996 Stock Option and Grant Plan, (5) the Company's 1996
     Directors' Stock Option Plan, and (6) a stock split of 1.06006 shares of
     Common Stock for each share of Common Stock outstanding as of the effective
     date of the Offering.

                                       5

<PAGE>
 
                                    PART II

     ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
              STOCKHOLDER MATTERS


     Market Information

          Since the Company's Common Stock was not publicly traded until after
     the Offering there was not a market for the Company's Common Stock in
     fiscal 1997.

          The Company's Common Stock is currently traded on the Nasdaq National
     Market.  As of June 17, 1997, there were 44 stockholders of record of the
     Company's Common Stock.

     Dividends

          The Company has never paid any cash dividends on its Common Stock and
     does not anticipate paying cash dividends in the foreseeable future.  The
     Company currently intends to retain earnings, if any, for the development
     of its business.

                                       6

<PAGE>
 
     ITEM 6.  SELECTED FINANCIAL DATA

          The selected financial data set forth below with respect to the
     Company's consolidated statements of income for the four fiscal years ended
     March 31, 1994, 1995, 1996 and 1997 and consolidated balance sheets as of
     March 31, 1995, 1996 and 1997 are derived from audited financial statements
     of the Company.  The Company's consolidated statements of operations data
     for the year ended March 31, 1993 and the consolidated balance sheet data
     as of March 31, 1993 and 1994 are derived from unaudited financial
     statements of the Company.  The unaudited financial statements include all
     adjustments, consisting only of normal recurring adjustments, that the
     Company considers necessary for a fair presentation of the financial
     position and results of operations for these periods.  The data set forth
     below should be read in conjunction with "Management's Discussion and
     Analysis of Financial Condition and Results of Operations" and the
     financial statements and notes thereto included elsewhere in this report.

<TABLE>
<CAPTION>
 
                                            Year Ended March 31,
                             --------------------------------------------------
                               1993      1994      1995      1996       1997
                             --------  --------  --------  ---------  ---------
                               (In thousands, except per share and operating
                                                   data)
<S>                          <C>       <C>       <C>       <C>        <C>
Statement of Operations
 Data (1):
Revenue....................  $ 5,152   $ 6,028   $ 8,023   $ 10,558   $ 18,819
Cost of services...........    2,852     3,207     4,179      5,207      8,706
                             -------   -------   -------   --------   --------
Gross Profit...............    2,300     2,821     3,844      5,351     10,113
Operating expenses:
   General and
    administrative.........    1,169     1,688     1,948      2,225      3,224
   Sales and marketing.....      514       618       744      1,100      1,890
   Research and development      140       283       375        614      1,272
                             -------   -------   -------   --------   --------
Income (loss) from
 operations................      477       232       777      1,412      3,727
Other income...............       --        --       276         --         --
Interest (expense) income,
 net.......................      (36)      (24)      (14)         2          2
                             -------   -------   -------   --------   --------
Income before provision
 for income taxes,
 extraordinary item
  and cumulative effect of
   change in accounting
   principle...............      441       208     1,039      1,414      3,729
Provision for income taxes.     (270)      (61)     (468)      (682)    (1,917)
                             -------   -------   -------   --------   --------
Income before
 extraordinary item and
 cumulative
 effect of change in
  accounting principle.....      171       147       571        732      1,812
Extraordinary item for
 utilization of net
 operating loss
 carryforwards.............       72        --        --         --         --
Cumulative effect of
 change in accounting
 principal (2).............       --        19        --         --         --
                             -------   -------   -------   --------   --------
Net income.................  $   243   $   166   $   571   $    732   $  1,812
                             =======   =======   =======   ========   ========
 
Net income per common share  $  0.05   $  0.04   $  0.12   $   0.16   $   0.39
Weighted-average number of
 common shares outstanding
 (3).......................    4,667     4,667     4,667      4,667      4,667
 
Net income per proforma
 common share..............  $  0.04   $  0.03   $  0.09   $   0.11   $   0.28
Proforma weighted-average
 number of common shares
 outstanding (3)...........    6,467     6,467     6,467      6,467      6,467
Operating Data:
Number of employees........       75       116       123        145        282
Number of candidates
 processed (4).............   46,000    55,000    84,000    145,000    403,000

<CAPTION>  
                                                 March 31,
                             --------------------------------------------------
                               1993      1994      1995      1996       1997
                             --------  --------  --------  ---------  ---------
<S>                          <C>       <C>       <C>       <C>        <C>  
Balance Sheet Data (1):
Cash and cash equivalents..  $    72   $    22   $   228   $     70   $     60
Working capital............     (218)     (172)      389        530        152
Total assets...............    1,776     1,823     2,470      4,243      8,595
Total liabilities..........    1,662     1,543     1,620      1,846      5,352
Total stockholders' equity.      114       280       850      2,396      3,243
</TABLE>

---------
(1) The financial statements for all periods prior to March 31, 1996, have
    been presented on a consolidated basis at the historical cost basis of
    the entities involved in the Reorganization in a manner similar to a
    pooling of interests. As of March 31, 1996, the date of the
    Reorganization, the interests of the shareholders of such entities
    other than one controlling shareholder have been accounted for as a
    purchase of minority interest. See "Management's Discussion and
    Analysis of Financial Condition and Results of Operations--Overview"
    under Item 7 of Part II hereof and Note 1 to the Notes to Consolidated
    Financial Statements under Item 8 of Part II hereof.
(2) Upon adoption of SFAS No. 109, the Company recorded a cumulative effect
    of change in accounting principle of $19,091.
(3) See Note 2 to the Notes to Consolidated Financial Statements under Item
    8 of Part II hereof for a description of weighted-average number of
    common shares outstanding and the proforma weighted-average number of
    common shares outstanding.
(4) Represents total number of candidate interactions with one of the
    Company's four service functions such as number of candidates assessed,
    number of candidates trained and developed, number of service
    representatives monitored and number of employment applicants
    processed.

                                       7

<PAGE>
 
     ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
              RESULTS OF OPERATIONS

       The following discussion should be read in conjunction with the Company's
     Selected Financial Data and the related notes thereto included in Item 6
     and the Company's Consolidated Financial Statements and related notes
     thereto included in Item 8.  This report also contains, in addition to
     historical information, forward-looking statements within the meaning of
     Section 27A of the Securities Act of 1933, as amended, and Section 21E of
     the Securities Exchange Act of 1934, as amended.  Any such statements are
     subject to risks and uncertainties that could cause the actual results to
     differ materially from those projected in such statements, including
     negative developments relating to unforseen order cancellations or the
     effect of a customer delaying an order, negative developments relating to
     the Company's significant customers, a reduction in demand for the
     Company's services, the impact of intense competition, changes in the
     industry, and changes in the general economy.  The Company undertakes no
     obligation to publicly update or revise any forward-looking statement,
     whether as a result of new information, future events or otherwise.

     Overview

       ASI Solutions Incorporated is a leading national provider of a
     comprehensive range of human resources outsourcing services for large
     organizations seeking to hire, train and develop a higher quality, more
     effective workforce.  The Company's services are organized into four core
     areas; assessment and selection, training and development, customer contact
     monitoring and employment process administration.  The Company believes
     these services position the Company as a single-source solution for many
     organizations which outsource all or a portion of their human resources
     functions.  The Company markets its services principally to Fortune 500
     companies for which customer service, sales and call center functions are
     critical components of their businesses.  Industries served by the Company
     include telecommunications, financial services, information technology,
     consumer products and healthcare.

       The Company was founded in 1978 to provide assessment services
     principally to companies in the securities industry and later to several of
     the regional telephone companies.  In 1986, the Company acquired a
     background investigation firm which provided pre-employment screening
     services.  Prior to fiscal 1994, the Company's revenue was primarily
     generated from assessment and selection services and limited employment
     process administration services, such as background checks.

       In fiscal 1994, the Company introduced and began generating revenue from
     a broader array of employment process administration services and training
     and development services, which have favorably impacted the Company's
     results of operations since that time.  In October 1996, the Company
     introduced its customer contact monitoring services and the Company expects
     that revenue from such services will represent an increasing percentage of
     the Company's total revenue in the future.  From fiscal 1992 to fiscal
     1997, the Company's revenue has increased at a compounded annual growth
     rate of approximately 34%, from $4.3 million in fiscal 1992 to $18.8
     million in fiscal 1997.

       The Company charges for its services through contractual arrangements
     which vary depending on the type of service and the nature of the Company's
     relationship with the client and recognizes revenue upon completion of such
     services.  For assessment and selection, the Company generally charges a
     fixed fee for the initial design of the assessment instruments and
     selection process, and then delivers the service for a per applicant fee.
     For training and development contracts, the Company generally charges a
     fixed fee per person. For customer contact monitoring, the Company
     generally charges a fee per-call monitored, determined by the duration of
     the call, aggregate number of calls, and other relevant variables.  For
     employment process administration contracts, the Company charges a per-unit
     fee, which varies depending upon whether the client only needs one type of
     service, such as employee background checks, or an entire recruitment and
     hiring process.  Individual services generally are also provided on a per-
     unit fee basis, while more complete services typically include a base fee
     component and a per-unit fee.

                                       8

<PAGE>
 
       The Company's clients generally use its services on an as-needed basis,
     requiring the Company to be able to respond quickly to changes in the
     volume of services it must provide at a given time.  The Company has taken
     a variety of steps in order to address the operational challenges this
     situation presents and increase its ability to control its cost of
     services.  For example, the Company engages many professionals, including a
     number of its psychologists, on a part-time basis, which enables it to have
     access to a large number of staff on relatively short notice without
     incurring significant fixed labor expenses.  The Company also cross-trains
     its employees on multiple aspects of the delivery of its services, giving
     the Company as much flexibility as possible when staffing a particular
     client engagement.  In addition, the Company often provides its services at
     client facilities or other off-site locations, limiting the Company's need
     to expand its own facilities in response to rapid increases in clients'
     demands for services.

       Cost of services includes payroll and other expenses directly
     attributable to the services delivered by the Company, as well as
     facilities costs, including telephone expenses, costs for third party data
     utilized in background reports (e.g., credit bureau reports) and any
     necessary travel directly related to providing such services.  Cost of
     services as a percentage of revenue has decreased in each of the last four
     years, from 53.2% in fiscal 1994 to 46.3% in fiscal 1997.  No assurance can
     be given that these trends will continue in the future.

       The Company generally has experienced lower cost of services on its newer
     offerings, particularly in the employment process administration and
     training and development categories.  Employment process administration
     services have tended to have lower associated labor costs due to
     efficiencies achieved through the use of various automation technologies
     which have reduced the Company's staffing level requirements. Such
     technologies include interactive voice response used to automate components
     of the Company's recruitment process, and remote access to several of the
     Company's services through its worldwide web site. In addition, the
     provision of employment process administration services does not require as
     many professionals with advanced degrees as are required in the Company's
     other services, resulting in lower payroll rates.  With respect to training
     and development, while these services typically are provided by experienced
     staff who have masters or doctoral degrees, the relatively high payroll
     expense associated with such personnel is offset by higher pricing for the
     services they provide.  In addition, provision of training and development
     services has not generally required a significant increase in the Company's
     facilities because off-site temporary locations and client facilities
     typically are used to provide such services.

       General and administrative expense includes payroll and related expenses
     attributable to senior management, finance, information systems, human
     resources and office administration personnel, facilities costs and general
     office expenses pertaining to these functions, as well as outside
     professional fees.  General and administrative expense as a percentage of
     revenue has decreased in each of the last three years, from 28.0% in fiscal
     1994 to 17.1% in fiscal 1997.  No assurance can be given that these trends
     will continue in the future. To date, the Company has been able to leverage
     its existing management and administrative infrastructure to support its
     expanded services.  The Company believes, however, that additional
     investment in management personnel, administrative staff and facilities
     will be required to continue to support anticipated future growth.

       Sales and marketing expense consists of salaries, commissions on a small
     number of the Company's services, travel-related costs associated with the
     solicitation of new business, the cost of designing, producing and
     distributing marketing materials, and facilities and office-related expense
     pertaining to these activities.  Sales and marketing expense as a
     percentage of revenue has averaged approximately 10.0% over the last four
     years. Over the next two years, the Company intends to substantially
     increase its sales and marketing efforts through staffing additions and
     expenditures for marketing materials and advertising.

       Research and development expense includes payroll and related expenses,
     facilities costs and necessary travel expenses pertaining to the
     professional staff which develop new programs used in the conduct of
     assessment and selection testing, training and development activities and
     customer contact monitoring.  Such research and development typically is
     only conducted in connection with services being performed under existing
     client contracts, and is expensed as incurred.

                                       9

<PAGE>
 
       The Company's operations are subject to federal, New York State, New York
     City and certain additional franchise taxes, resulting in an effective tax
     rate typically in excess of 40%.

       Because of the significant size and financial resources of the Company's
     existing clients, write-offs for bad debts have historically not been
     material.  As of March 31, 1997, the following five customers represented
     59% of the Company's total accounts receivable: NYNEX Corporation,
     Ameritech Corporation, American Express Company, Hewlett-Packard Company,
     and Southwestern Bell Telephone Company.

       In March 1996, the Company completed the Reorganization pursuant to which
     its two predecessor companies, Assessment Solutions and Proudfoot, which
     were separately owned but commonly controlled, became subsidiaries of the
     Company and substantially all of the stockholders of the predecessors
     became stockholders of the Company.  The Reorganization has been accounted
     for as a reorganization of entities under common control to the extent of
     the ownership of one stockholder who held an approximately 60% interest in
     the entities both prior and subsequent to the Reorganization.  The
     remaining approximately 40% of the ownership interests have been treated as
     if acquired and have been accounted for as a purchase, resulting in an
     increase in goodwill of approximately $1,063,000.  This goodwill is being
     amortized over ten years.

     Results of Operations

       The following table sets forth, for the periods indicated, selected
     statements of operations data as a percentage of revenues:

<TABLE>
<CAPTION>
 
                                                          Year Ended March 31,
                                                        -----------------------
                                                         1995     1996    1997
                                                        -------  ------  ------
     <S>                                                <C>      <C>     <C>
     Revenue............................                 100.0%  100.0%  100.0%
     Cost of services...................                  52.1    49.3    46.3
                                                         -----   -----   -----
     Gross profit.......................                  47.9    50.7    53.7
     Operating expenses:
      General and administrative........                  24.3    21.1    17.1
      Sales and marketing...............                   9.3    10.4    10.0
      Research and development..........                   4.7     5.8     6.8
                                                         -----   -----   -----
     Income from operations.............                   9.6    13.4    19.8
     Other income.......................                   3.4      --      --
     Interest (expense) income, net.....                  (0.1)     --      --
                                                         -----   -----   -----
     Income before provision for income
      taxes and cumulative effect of 
       change in accounting principle...                  12.9    13.4    19.8
     Provision for income taxes.........                  (5.8)   (6.5)  (10.2)
     Cumulative effect of change in
      accounting principle..............                    --      --      --
                                                         -----   -----   -----
     Net income.........................                   7.1%    6.9%    9.6%
                                                         =====   =====   =====
</TABLE>

       Fiscal 1997 Compared With Fiscal 1996

       Revenue.  Revenue increased $8.2 million or 77.4% from $10.6 million for
     fiscal 1996 to $18.8 million for fiscal 1997.  This increase was
     attributable to revenue increases from all four business areas.  Assessment
     and selection revenue increased $1.8 million or 39.1% from $4.6 million for
     fiscal 1996 to $6.4 million for fiscal 1997. Revenue gains from assessment
     and selection services were attributable to a general increase in demand
     for the Company's services from existing clients.  Training and development
     revenue increased $1.8 million or 150% from $1.2 million for fiscal 1996 to
     $3.0 million for fiscal 1997.  Revenue gains from training and development
     services were principally due to expansion of programs at two of the
     Company's existing clients.  Customer contact monitoring revenue increased
     $730,000 or 252% from $284,000 for fiscal 1996 to $1.0 million for fiscal
     1997.  Revenue gains from customer contact monitoring services were
     attributable to the implementation of a new service offering.  Employment
     process administration revenue increased $3.9 million or 86.7% from 

                                      10

<PAGE>
 
     $4.5 million for fiscal 1996 to $8.4 million for fiscal 1997. Revenue gains
     from employment process administration services were principally due to
     expansion of programs at two of the Company's existing clients.

       Cost of services.  Cost of services increased $3.5 million or 67.3% from
     $5.2 million for fiscal 1996 to $8.7 million for fiscal 1997.  The increase
     was primarily attributable to personnel additions as well as to increases
     in facilities costs due to office expansion, travel expense associated with
     training and development services and the cost of third party data used in
     the Company's background reports offset, in part, by a decrease in
     personnel expense necessary to generate such reports.  As a percentage of
     revenue, cost of services decreased from 49.3% for fiscal 1996 to 46.3% for
     fiscal 1997, principally due to the fact that a significant portion of the
     Company's outsourcing services and training and development services were
     performed off-site at temporary locations and clients' offices which
     resulted in facilities costs increasing at a slower rate than the rate of
     increase in revenue.  This decrease was offset in part by increases in
     revenue during the period from lower margin services, particularly customer
     contact monitoring and employment background reports.

       General and administrative.  General and administrative expense increased
     $1.0 million or 45.5% from $2.2 million in fiscal 1996 to $3.2 million in
     fiscal 1997.  This increase was primarily attributable to an increase in
     salary expense relating to personnel additions, higher facilities costs due
     to office expansion and amortization of goodwill associated with the
     Reorganization.  As a percentage of revenue, general and administrative
     expense decreased from 21.1% in fiscal 1996 to 17.1% in fiscal 1997 due to
     the Company's ability to service a portion of the additional business
     generated during the period with existing personnel.  In addition, the
     Company reduced its utilization of temporary workers and reduced its costs
     for medical premiums by moving to a managed care health plan.  As the
     Company matures, it expects to employ additional personnel necessary to
     service its growth.

       Sales and marketing.  Sales and marketing expense increased $789,000  or
     71.7% from $1.1 million in fiscal 1996 to $1.9 million in fiscal 1997.
     This increase was principally due to increases in expenditures for
     marketing materials and the ongoing cost of maintaining the Company's
     internet website.  As a percentage of revenue, sales and marketing expense
     decreased from 10.4% in fiscal 1996 to 10.0% in fiscal 1997 due to the fact
     that revenue increased at a faster rate than increases in salary expense.

       Research and development.  Research and development expense increased
     $658,000 or 107.2% from $614,000 in fiscal 1996 to $1.3 million in fiscal
     1997.  This increase was primarily attributable to the hiring of additional
     research and development personnel and the resulting expenditures for
     payroll increases which accompanied such hiring and to increases in travel-
     related expenses attributable to new business development. Research and
     development expense increased as a percentage of revenue from 5.8% in
     fiscal 1996 to 6.8% in fiscal 1997 due to the expansion of the professional
     staff, principally senior level industrial psychologists to support new
     business development efforts and existing programs.

       Interest (expense) income, net.  Net interest (expense) income represents
     interest paid on bank borrowings offset by interest income accrued on notes
     receivable due from shareholders.

       Provision for income taxes.  The difference between the effective federal
     income tax provision calculated using statutory rates and the actual
     provision recorded is principally due to the effect of state and local
     taxes. Provision for income taxes for fiscal 1997 also includes $236,000
     relating to the nondeductibility of certain expenses resulting from an
     Internal Revenue Service examination.

       Fiscal 1996 Compared With Fiscal 1995

       Revenue.  Revenue increased $2.5 million or 31.6% from $8.0 million in
     fiscal 1995 to $10.6 million in fiscal 1996.  The increase was primarily
     attributable to increased revenue from the Company's employment processing
     administration services and from training and development services.
     Assessment and selection revenue decreased $251,000 or 5.2% from $4.8
     million in fiscal 1995 to $4.6 million in fiscal 1996. Revenue decreases
     from assessment and selection services were attributable to a general
     decrease in demand for the Company's services from existing clients.
     Training and development revenue increased $738,000 or 162.9% from $453,000

                                      11

<PAGE>
 
     in fiscal 1995 to $1.2 million in fiscal 1996. Revenue gains from training
     and development services were due to the expansion of a training program by
     one of the Company's regular clients and the retention by that client of
     the Company's services in implementing such training program. In fiscal
     1996, the Company commenced its customer contact monitoring operations
     which contributed $284,000 in revenues during the year. Employment process
     administration revenue increased $1.8 million or 64.2% from $2.8 million in
     fiscal 1995 to $4.5 million in fiscal 1996. Revenue gains from employment
     process administration services were due to an increase in the Company's
     marketing efforts related to background reports during this period.

       Cost of services.  Cost of services increased $1.0 million or 24.6% from
     $4.2 million in fiscal 1995 to $5.2 million in fiscal 1996.  The increase
     was principally attributable to personnel additions of $2.4 million as well
     as to fees paid for third party data used in the Company's background
     reports of $495,931.  As a percentage of revenue, cost of services
     decreased from 52.1% in fiscal 1995 to 49.3% in fiscal 1996.  This decrease
     was attributable to the Company's ability to utilize personnel without
     advanced education on the masters level to perform many of the Company's
     outsourcing services.

       General and administrative.  General and administrative expense increased
     $277,000 or 14.3% from $1.9 million in fiscal 1995 to $2.2 million in
     fiscal 1996.  This increase was primarily attributable to the hiring of
     additional management personnel, as well as expenditures for information
     systems and office support.  As a percentage of revenue, general and
     administrative expense decreased from 24.3% in fiscal 1995 to 21.1% in
     fiscal 1996 as these expenses increased at a slower rate than the rate of
     increase in revenue.  As the Company matures and this growth necessitates
     the hiring of additional personnel and an additional investment in office
     support for such personnel, there can be no assurance that general and
     administrative expense will continue to increase at a rate lower than that
     of revenue.

       Sales and marketing.  Sales and marketing expense increased $356,000 or
     47.8% from $744,000 in fiscal 1995 to $1.1 million in fiscal 1996.  As a
     percentage of revenue, sales and marketing expense increased from 9.3% in
     fiscal 1995 to 10.4% in fiscal 1996 due to an expansion of sales and
     marketing personnel, increases in commissions earned from new business
     developed and increases in marketing expenses to support ongoing marketing
     efforts, including maintaining the Company's internet web site.

       Research and development.  Research and development expense increased
     $239,000 or 63.7% from $375,000 in fiscal 1995 to $614,000 in fiscal 1996.
     This increase was primarily attributable to the hiring of additional
     research and development personnel and the resulting expenditures for
     payroll increases which accompanied such hiring.  As a percentage of
     revenue, research and development expense increased from 4.7% in fiscal
     1995 to 5.8% in fiscal 1996 due to an increase in the number of research
     personnel utilized during the year to support business growth and the
     related costs of operating a larger department.

       Other income.  Other income represents income earned from the early
     termination of a facility lease in fiscal 1995.

       Interest (expense) income, net.  Net interest (expense) income decreased
     during fiscal 1996 principally due to the repayment of notes payable to a
     bank and shareholder.

       Provision for income taxes.  The difference between the effective federal
     income tax provision calculated using statutory rates and the actual
     provision recorded is principally due to the effect of state and local
     taxes.

     Liquidity and Capital Resources

       The Company's liquidity needs arise from capital requirements, capital
     expenditures and principal and interest payments on debt.  Historically,
     the Company's source of liquidity has been cash flow generated internally
     from operations, supplemented by short-term borrowings under bank lines of
     credit and long-term equipment financing. Cash flow provided by operating
     activities was $691,000, $290,000 and $986,000 in fiscal years 1995, 1996
     and 1997, respectively, on net income of $571,000, $732,000 and $1,812,000,
     respectively.

                                      12

<PAGE>
 
       Cash flow used in investing activities was $242,000, $280,000 and
     $2,053,000 in fiscal years 1995, 1996 and 1997, respectively.  These
     investment expenditures were primarily for computer equipment, for
     furniture and equipment for a new operations center in Melville, New York
     and for expansion of the corporate headquarters in New York City.

       Cash flow generated from financing activities was $1,057,000 in fiscal
     1997 and was attributable to an increase in short-term bank borrowings.
     Cash flow used in financing activities was $243,000 and $169,000 for the
     fiscal years ended 1995 and 1996, respectively, and was primarily used for
     debt repayment, offset by increased short-term bank borrowings of $100,000
     in fiscal 1996 the proceeds of which were used for working capital
     purposes.

       The Company's external sources of liquidity have principally been
     borrowings under bank lines of credit. As of March 31, 1997, the Company
     had available bank lines of credit aggregating $3.3 million, of which
     approximately $1.3 million was unused.  These lines of credit mature in
     September 1997.  The Company has a commitment to replace its existing bank
     credit facility with a new facility that provides up to $10.0 million in
     availability.  The Company also has a $1.9 million equipment lease
     facility, of which approximately $1.5 million was unused as of March 31,
     1997.  Borrowings under this facility convert to term loans payable over
     five years after the related assets are placed in service.  All of the
     approximately $400,000 of borrowings under this facility have been
     converted and have maturity dates ranging from November 2001 to February
     2002.

       The Company has used a portion of the net proceeds from the Offering to
     repay the bank lines of credit of $2 million and other payables of $1
     million.  The Company intends to use the remaining net proceeds of
     approximately $6 million for working capital purposes, including management
     staff additions, funding additional expansion of facilities, software
     development and possible acquisitions.

       The Company believes that funds generated from operations, together with
     existing cash, available credit lines under bank facilities and the net
     proceeds from the Offering will be sufficient to finance its current
     operations, and planned expansion and internal growth for at least the next
     twelve months.

     Inflation

       Inflation has had a minimal effect on the results of the Company.

                                      13

<PAGE>
 
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>

                                                                           Page
                                                                           ----
<S>                                                                        <C>
Report of Independent Accountants......................................     15

Consolidated Balance Sheets as of March 31, 1997 and 1996..............     16

Consolidated Statements of Income for the years ended March 31,
 1997, 1996 and 1995...................................................     17

Consolidated Statements of Stockholders' Equity for the years
 ended March 31, 1997, 1996 and 1995...................................     18

Consolidated Statements of Cash Flows for the years ended March 31,
  1997, 1996 and 1995..................................................     19

Notes to Consolidated Financial Statements.............................     20-29

</TABLE>

                                       14

<PAGE>
 
Report of Independent Accountants



To the Board of Directors and Stockholders of ASI Solutions Incorporated:

We have audited the consolidated financial statements of ASI Solutions
Incorporated and Subsidiaries listed in the index on page 14 of this annual
report on Form 10-K.  These financial statements are the responsibility of the
Company's management.  Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.  An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation.  We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of ASI
Solutions Incorporated and Subsidiaries as of March 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended March 31, 1997, in conformity with generally
accepted accounting principles.



                                            
Melville, New York                                    Coopers & Lybrand L.L.P.
May 29, 1997.

                                       15

<PAGE>
 
ASI Solutions Incorporated and Subsidiaries
Consolidated Balance Sheets
March 31, 1997 and 1996

<TABLE> 
<CAPTION> 
                    ASSETS:                                                1997              1996
<S>                                                                 <C>               <C> 
Current assets:
  Cash                                                              $         60,190  $         69,583
  Accounts receivable, net                                                 4,184,886         2,029,045
  Prepaid expenses and other current assets                                  343,455            42,201
  Deferred income taxes                                                        5,910            12,683
  Notes receivable from stockholders                                         389,191            72,746 
                                                                     ---------------   ---------------
    Total current assets                                                   4,983,632         2,226,258

Property and equipment, net                                                2,219,801           520,724
Notes receivable from stockholders                                                             290,984
Intangibles, net                                                           1,121,815         1,107,871
Other assets                                                                 269,990            96,768
                                                                     ---------------   ---------------
    Total assets                                                     $     8,595,238   $     4,242,605
                                                                     ===============   ===============
         LIABILITIES AND STOCKHOLDERS' EQUITY:

Current liabilities:
  Notes payable to bank                                              $     1,844,000   $       100,000
  Current portion, long-term debt                                             66,506
  Accounts payable and accrued expenses                                    1,874,139           839,382
  Accrued income taxes                                                     1,046,584           756,503
                                                                     ---------------   ---------------
    Total current liabilities                                              4,831,229         1,695,885

Deferred income taxes                                                         78,303
Long-term debt, less current portion                                         306,626
Other liabilities                                                            136,194           150,492
                                                                     ---------------   ---------------
    Total liabilities                                                      5,352,352         1,846,377
                                                                     ---------------   ---------------
Commitments (Note 6)

Stockholders' equity:
  Common stock, $.01 par value, authorized  
    5,000,000 shares; issued and outstanding 
    4,625,158 shares                                                          46,252            46,252
  Additional paid-in capital                                               1,109,218         1,109,218
  Retained earnings                                                        3,052,450         1,240,758
  Less deferred offering costs                                             (965,034)
                                                                     ---------------   ---------------
    Total stockholders' equity                                             3,242,886         2,396,228
                                                                     ---------------   ---------------
    Total liabilities and stockholders' equity                       $     8,595,238   $     4,242,605
                                                                     ===============   ===============
</TABLE> 


The accompanying notes are an integral part of these consolidated financial
statements.

                                      16
<PAGE>
 
ASI Solutions Incorporated and Subsidiaries
Consolidated Statements of Income
for the years ended March 31, 1997, 1996 and 1995

<TABLE> 
<CAPTION> 

                                                                           1997               1996             1995
<S>                                                                  <C>               <C>               <C> 
Revenue                                                              $    18,818,839   $     10,558,113  $     8,022,623
Cost of services                                                           8,705,528          5,206,854        4,178,736
                                                                     ---------------   ----------------  ---------------
  Gross profit                                                            10,113,311          5,351,259        3,843,887
                                                                                                             
Operating expenses:                                                                                          
  General and administrative                                               3,224,083          2,225,551        1,947,384
  Sales and marketing                                                      1,889,910          1,100,205          744,433
  Research and development                                                 1,272,043            613,906          375,086
                                                                     ---------------   ----------------  ---------------
Income from operations                                                     3,727,275          1,411,597          776,984
                                                                                                             
Other income                                                                                                     276,202
Interest (expense) income, net                                                 1,343              2,227         (14,374)
                                                                     ---------------   ----------------  ---------------
Income before provision for income taxes                                   3,728,618          1,413,824        1,038,812
                                                                                                             
Provision for income taxes                                                 1,916,926            681,455          467,876
                                                                     ---------------   ----------------  ---------------
                                                                                                             
    Net income                                                       $     1,811,692   $        732,369  $       570,936
                                                                     ===============   ================  ===============
                                                                                                             
Net income per common share (Note 2)                                 $          0.39   $           0.16  $          0.12
                                                                     ===============   ================  ===============
                                                                                                             
Weighted average common shares outstanding (Note 2)                        4,667,404          4,667,404        4,667,404
                                                                     ===============   ================  ===============
                                                                                                             
Unaudited pro forma net income per common share (Note 2)             $          0.28   $           0.11  $          0.09
                                                                     ===============   ================  ===============
                                                                                                             
Unaudited pro forma weighted average common shares                                                           
  outstanding (Note 2)                                                     6,467,404          6,467,404        6,467,404
                                                                     ===============   ================  ===============
</TABLE> 



The accompanying notes are an integral part of these consolidated financial
statements.

                                      17
<PAGE>
 
ASI Solutions Incorporated and Subsidiaries
Consolidated Statements of Stockholders' Equity
for the years ended March 31, 1997, 1996 and 1995

<TABLE> 
<CAPTION> 
                                               ASI Solutions               Assessment Solutions      
                                               Incorporated                    Incorporated          
                                               Common Stock                  Common Stock (1)        
                                           Shares        Amount            Shares       Amount       
<S>                                    <C>             <C>             <C>            <C>  
March 31, 1994                                                                100     $    16,750  
  Net income                                                                                        
                                                                       ----------     -----------    
                                                                       
March 31, 1995                                                                100          16,750  
  Net income                                                                                        
  Settlement of stockholder note                                                                    
  Recapitalization of Company            4,625,158     $    46,252          (100)        (16,750)
                                         ---------     -----------     ----------     -----------    
                                                                       
March 31, 1996                           4,625,158          46,252                                  
  Net income                                                                                        
  Deferred offering costs                                                                           
                                         ---------     -----------     ----------     -----------    
                                                                       
March 31, 1997                           4,625,158     $    46,252              -     $         -      
                                         =========     ===========     ==========     ===========    
<CAPTION> 

                                         Proudfoot Reports     
                                           Incorporated           Additional                      Deferred
                                         Common Stock (2)           Paid-in        Retained       Offering
                                        Shares       Amount         Capital        Earnings         Costs          Total
<S>                                 <C>            <C>            <C>            <C>             <C>             <C> 
March 31, 1994                        1,900,000    $   19,000     $  306,324     $  (62,547)                     $   279,527
  Net income                                                                         570,936                         570,936
                                    -----------    ----------     ----------     -----------     -----------     ----------- 
                                    
March 31, 1995                        1,900,000        19,000        306,324         508,389                         850,463
  Net income                                                                         732,369                         732,369
  Settlement of stockholder note                                   (250,000)                                       (250,000)
  Recapitalization of Company       (1,900,000)      (19,000)      1,052,894                                       1,063,396
                                    -----------    ----------     ----------     -----------     -----------     ----------- 
                                    
March 31, 1996                                                     1,109,218       1,240,758                       2,396,228
  Net income                                                                       1,811,692                       1,811,692
  Deferred offering costs                                                                        $ (965,034)       (965,034)
                                    -----------    ----------     ----------     -----------     -----------     ----------- 
                                    
March 31, 1997                                -    $        -     $1,109,218     $ 3,052,450     $ (965,034)     $ 3,242,886
                                    ===========    ==========     ==========     ===========     ===========     =========== 
</TABLE> 


The accompanying notes are an integral part of these consolidated financial
statements.

                                      18
<PAGE>
 
ASI Solutions Incorporated and Subsidiaries
Consolidated Statements of Cash Flows
for the years ended March 31, 1997, 1996 and 1995

<TABLE> 
<CAPTION> 

                                                                                    1997              1996             1995

     <S>                                                                       <C>               <C>              <C> 
     Cash flow from operating activities:                              
         Net income                                                            $     1,811,692   $      732,369   $       570,936
         Adjustments to reconcile net income to net cash 
           provided by operating activities:                                               
              Depreciation and amortization                                            434,614          174,576           154,582
              Provision for doubtful accounts                                          (9,200)          (4,956)
              Accrual of straight-line rent                                           (14,298)           63,553          (12,948)
              Loss on write-off of leasehold improvements                                                                  17,120
              Deferred income taxes                                                    113,060          (7,943)           (4,317)
              Changes in operating assets and liabilities:             
                 Accounts receivable                                               (2,146,639)        (746,550)         (297,824)
                 Prepaid expenses and other current assets                           (301,254)            3,349          (33,173)
                 Other assets                                                        (173,222)            (154)          (34,167)
                 Notes receivable from stockholders                                   (25,461)        (264,442)          (41,826)
                 Accounts payable and accrued expenses                               1,034,758          156,333          (19,692)
                 Other liabilities                                                                                       (49,734)
                 Accrued income taxes                                                  262,097          183,912           442,536
                                                                               ---------------   --------------   ---------------
                   Net cash provided by operating activities                           986,147          290,047           691,493
                                                                               ---------------   --------------   ---------------
                                                                       
     Cash flow from investing activities:                              
         Acquisition of property and equipment                                     (2,052,638)        (279,795)         (242,154)
                                                                               ---------------   --------------   ---------------
                   Net cash used in investing activities                           (2,052,638)        (279,795)         (242,154)
                                                                               ---------------   --------------   ---------------
                                                                       
     Cash flow from financing activities:                              
         Cash overdraft                                                                                                  (21,487)
         Proceeds from (repayment of) notes payable to stockholder                                    (210,789)            51,161
         Proceeds from borrowings                                                    2,117,132          100,000
         Principal repayment of debt                                                                   (58,333)         (272,657)
         Deferred offering costs                                                     (965,034)
         Purchase of minority shareholder interest                                    (95,000)
                                                                               ---------------   --------------   ---------------
                   Net cash provided by (used in) financing activities               1,057,098        (169,122)         (242,983) 
                                                                               ---------------   --------------   ---------------
                                                                       
     Net increase (decrease) in cash                                                   (9,393)        (158,870)           206,356
     Cash, at beginning of the period                                                   69,583          228,453            22,097
                                                                               ---------------   --------------   ---------------
     Cash, at end of the period                                                $        60,190   $       69,583   $       228,453
                                                                               ===============   ==============   ===============
                                                                       
                                                                       
     Supplemental cash flow information:                               
         Cash paid for:                                                
           Interest                                                            $        40,027   $       5,875    $       16,296
           Income taxes                                                        $     1,531,705   $     463,287    $       31,562

     Supplemental disclosure of non-cash transactions:
         The Reorganization of the Company as of March 31, 1996
           resulted in a partial change in accounting basis with an 
           increase in intangible assets and a corresponding 
           increase in stockholders' equity of 
           approximately $1,063,000 (Note 1)
</TABLE> 


The accompanying notes are an integral part of these consolidated financial
statements.

                                      19
<PAGE>
 
ASI Solutions Incorporated and Subsidiaries
Notes to Consolidated Financial Statements


1.  Organization and Basis of Presentation:

    On March 26, 1996, ASI Solutions Incorporated (the "Company") was
    incorporated in the State of Delaware. Effective March 31, 1996, the Company
    issued 4,625,158 shares of Common Stock in exchange for substantially all of
    the issued and outstanding shares of common stock of Proudfoot Reports
    Incorporated ("PRI") and 95% of the Common Stock of Assessment Solutions
    Incorporated ("Assessment Solutions"). During fiscal 1997, the remaining 5%
    of the outstanding common stock of Assessment Solutions was redeemed. The
    initial stockholders of the Company were also the principal stockholders of
    PRI and Assessment Solutions, the two previously separate but commonly
    controlled companies. After the reorganization, Assessment Solutions and PRI
    are wholly-owned subsidiaries of the Company. C3 Solutions Incorporated
    ("C3") was formed on September 16, 1996 as a wholly-owned subsidiary of the
    Company. The Company, Assessment Solutions, PRI and C3 are hereinafter
    referred to collectively as the "Company."

    Effective April 16, 1997, the Company sold 1,800,000 shares of common stock
    to the public at a price of $6 per share in an initial public offering (the
    "Offering"). Proceeds from the Offering, net of underwriters discount and
    offering costs, were approximately $9,079,000. Effective on the Offering
    date, the Company's Certificate of Incorporation (the "Certificate") was
    restated to increase the number of authorized shares of Common Stock to 18
    million shares. In addition, effective on the Offering date, the Board of
    Directors of the Company were authorized to issue up to 2,000,000 shares of
    Preferred Stock in one or more classes or series and to fix the rights,
    preferences, privileges and restrictions thereof, including dividend rights,
    conversion rights, voting rights, terms of redemption, liquidation
    preferences, and the number of shares constituting any series or the
    designation of such series. However, pursuant to the Certificate, the
    holders of Preferred Stock would not have cumulative voting rights with
    respect to the election of directors. Any such Preferred Stock issued by the
    Company may rank prior to the Common Stock as to dividend rights,
    liquidation preference or both, may have full or limited voting rights and
    may be convertible into shares of Common Stock.

    The exchange described above has been accounted for as a reorganization
    since all entities involved were under common control. The financial
    statements for all periods prior to March 31, 1996 have been presented on a
    consolidated basis at the historical cost basis of the entities involved in
    a manner similar to a pooling of interests (the "Predecessor"). All
    intercompany accounts and transactions have been eliminated in
    consolidation.

    The financial statements as of March 31, 1996, the date of the
    Reorganization, reflect the interests attributable to the one controlling
    shareholder of both combined entities at their historical basis of
    accounting. The remaining interests have been accounted for as a purchase of
    minority interests and the excess of the purchase price over the related
    historical cost of $1,063,000 has been allocated to intangible assets. As a
    result of the Reorganization, the results of operations of the Company after
    the Reorganization are not directly comparable to the financial statements
    of the Predecessor.

                                       20

<PAGE>
 
Notes to Consolidated Financial Statements, Continued


   Assessment Solutions is a management consulting firm with primary emphasis on
   research and the application of simulation technology to the assessment of
   sales, service and management personnel. PRI provides pre-employment and 
   post-employment background checks. C3 provides monitoring services for
   clients who engage in large-scale use of call centers for their customer
   contact functions.



2. Significant Accounting Policies:

   Use of Estimates

   The preparation of financial statements in conformity with generally accepted
   accounting principles requires management to make estimates and assumptions
   that affect the reported amounts of assets and liabilities and disclosure of
   contingent assets and liabilities at the date of the financial statements and
   the reported amounts of revenues and expenses during the reporting period.
   The most significant estimates made are for the recoverability of accounts
   receivable. Actual results could differ from those estimates.

   Concentration of Credit Risk

   Financial instruments which potentially subject the Company to concentration
   of credit risk consist of accounts receivable and cash deposits. Cash
   deposits generally do not exceed insurable limits. Accounts receivable are
   concentrated among a limited number of major companies. To reduce credit
   risk, the Company performs credit evaluations of its customers but does not
   generally require collateral. For the years ended March 31, 1997, 1996 and
   1995 revenues from the Company's top five customers represented approximately
   54%, 52%, and 62% of total revenues, respectively. Accounts receivable from
   five customers represented approximately 59% and 65% of total accounts
   receivable at March 31, 1997 and 1996, respectively.

   Allowance for doubtful accounts were approximately $14,000, $24,000 and
   $29,000 as of March 31, 1997, 1996 and 1995, respectively.

   Property and Equipment

   Furniture and equipment are stated at cost and depreciated over their
   estimated useful lives of five years using the straight-line method.
   Leasehold improvements are amortized over the shorter of the lease term or
   estimated useful life of the assets. Maintenance and repairs are charged to
   expense as incurred; renewals and improvements which extend the life of
   assets are capitalized. Gains or losses on the disposition of fixed assets
   are included in income.

   Intangible Assets

   Intangible assets principally include customer lists and the excess of
   purchase price over the fair value of identifiable net assets acquired
   (goodwill). The intangible assets are amortized on a straight-line basis over
   their estimated useful lives ranging from 10 to 40 years. Amortization
   expense relating to intangible assets was $84,005 for the year ended March
   31, 1997 and $13,481 for each of the years ended March 31, 1996 and 1995.
   Accumulated amortization relating to intangible assets was $224,395 and
   $140,390 as of March 31, 1997 and 1996, respectively.

                                      21
<PAGE>
 
Notes to Consolidated Financial Statements, Continued

   Long-lived Assets

   If events or changes in circumstances indicate that the carrying amount of a
   long-lived asset, including intangible assets, may not be recoverable, the
   Company estimates the future cash flows expected to result from the use of
   the asset and its eventual disposition. If the sum of the expected future
   cash flows (undiscounted) is less than the carrying amount of the long-lived
   asset, an impairment loss is recognized. To date, no impairment losses have
   been recognized.

   Cash and Cash Equivalents

   The Company considers all highly liquid investments purchased with an
   original maturity date of three months or less from the date of purchase to
   be a cash equivalent.

   Revenue

   The Company recognizes revenue as earned upon completion of services.

   Rent Expense

   The Company recognizes rent expense for operating leases on a straight-line
   basis over the term of the related lease.

   Income Taxes

   Deferred income taxes are recognized for the tax consequences in future years
   of differences between the tax bases of assets and liabilities and their
   financial reporting amounts at each year-end based on enacted tax laws and
   statutory tax rates applicable to the periods in which the differences are
   expected to affect taxable income. Valuation allowances are established when
   necessary to reduce deferred tax assets to the amount expected to be
   realized. Income tax expense consists of the tax payable for the period and
   the change during the period in deferred tax assets and liabilities. (See
   Note 7.)

   Net Income Per Share

   Net income per share for all periods has been computed using the weighted
   average number of common shares outstanding. Unaudited proforma net income
   per share for all periods has been computed using the weighted average number
   of common shares outstanding of 4,625,158 and the 1,800,000 shares issued in
   connection with the Offering, including 42,246 of common stock equivalents.


                                      22
<PAGE>
 
Notes to Consolidated Financial Statements, Continued


    Recent Accounting Pronouncements

    The Financial Accounting Standards Board has issued Statement of Financial
    Accounting Standards No. 123, "Accounting or Stock-Based Compensation"
    ("SFAS No. 123"), which prescribes a new method of accounting for stock-
    based compensation that determines compensation expense based on fair value
    measured at the grant date. SFAS No. 123 gives companies that grant stock
    options or other equity instruments to employees, the option of either
    adopting the new rules or continuing current accounting; however, disclosure
    would be required of the pro forma amounts as if the new rules had been
    adopted. SFAS No. 123 is effective for transactions entered into in fiscal
    years that begin after December 15, 1995. The Company has elected to
    continue with the current accounting method and disclose the proforma impact
    in the notes to the consolidated financial statements (See Note 9).

    In March 1997, the Financial Accounting Standards Board issued Statement of
    Financial Accounting Standards No. 128, "Earnings per Share ("SFAS No.
    128"), which establishes standards for computing and presenting earnings per
    share. SFAS No. 128 will be effective for financial statements issued for
    periods ending after December 15, 1997. Earlier application is not
    permitted.

    Reclassifications

    Certain items in the 1996 and 1995 consolidated financial statements have
    been reclassified to conform with the 1997 presentation.


3.  Related Party Transactions:

    The Company has 5-year notes receivable bearing interest at 7% from three
    officer-stockholders in the aggregate amount of $389,191 as of March 31,
    1997. The notes provide for annual principal payments of $72,746. On May 21,
    1997, the stockholders transferred 45,534 shares of the Company's common
    stock owned by them to the Company in full satisfaction of these notes.

    On March 31, 1996, a stockholder of Assessment Solutions exchanged 521,000
    shares of common stock in PRI to Assessment Solutions in full settlement of
    a note receivable from the stockholder in the amount of $250,000. In the
    consolidated financial statements, the investment in PRI has been accounted
    for as a reduction of additional paid-in capital. A director of the Company
    is also a partner of the law firm that is the Company's general counsel.
    Expenses incurred by the Company for legal services provided by this law
    firm were approximately $400,000, $38,000, and $33,000 for the years ended
    March 31, 1997, 1996 and 1995, respectively. In addition, options to
    purchase 5,000 shares of common stock were issued to this director at a
    price of $6.50.

                                       23
 

<PAGE>
 
Notes to Consolidated Financial Statements, Continued


4.  Property and Equipment:

    Property and equipment are comprised of the following:

<TABLE>
<CAPTION>
                                              1997             1996
 
      <S>                                  <C>              <C>
      Furniture and equipment              $  3,203,082   $  1,373,100
      Leasehold improvements                    265,641        110,393
                                           ------------   ------------
                                              3,468,723      1,483,493
       Less, accumulated depreciation                                   
        and amortization                      1,248,922        962,769
                                           ------------   ------------
                                           $  2,219,801   $    520,724
                                           ============   ============
</TABLE>

    Depreciation and amortization expense relating to fixed assets was $337,091,
    $161,095, and $141,101 for the years ended March 31, 1997, 1996 and 1995,
    respectively. During 1997, the Company wrote-off leasehold improvements with
    a cost basis of $64,456 and accumulated amortization of $50,938, resulting
    in a loss of $13,518. This loss is included in depreciation and amortization
    expense in the consolidated statement of income.


5.  Notes Payable to Bank

    The Company has lines of credit which mature in September 1997 and provide 
    up to $3,250,000 in financing. At March 31, 1997 and March 31, 1996,
    $1,844,000 and $100,000, respectively, which are payable on demand and bear
    interest at the bank's prime rate (8.5% at March 31, 1997) plus 1%, were
    outstanding under these facilities. The Company also has a standby letter of
    credit with a bank in the amount of $509,000 in connection with a lease for
    office space which reduces the amount available under the lines of credit.
    The unused amount under these lines of credit at March 31, 1997 is $897,000.
    Simultaneous with the closing of the Offering, this debt was repaid.
    --------------------------------------------------------------------

    The Company also has a $1.9 million line of credit available for furniture
    and equipment purchases to be utilized in connection with expansion of
    existing and new facilities. As the purchased assets are placed in service
    by the Company, the borrowings convert to five year term loans with interest
    payable at a fixed rate of 9.65%. As of March 31, 1997, $373,132 is
    outstanding under this facility.

    Amounts due under this facility for the next five years are as follows:

<TABLE>
<CAPTION>
           Fiscal year
           <S>                         <C>
           1998                        $  66,506
           1999                           73,218
           2000                           80,602
           2001                           88,734
           2002                           64,072
 
</TABLE>
    All of the debt is collateralized by substantially all the assets of the
    Company and is guaranteed by two principal stockholders.

                                       24

<PAGE>
 
Notes to Consolidated Financial Statements, Continued


6.  Lease Commitments

    The Company leases facilities under various operating leases which expire on
    various dates through 2006. The leases include escalations for operating
    expenses and real estate taxes. Rent expense charged to operations was
    $879,000, $584,000, and $483,000 for the years ended March 31, 1997, 1996
    and 1995, respectively.

    The Company relocated one of its corporate offices during fiscal 1995. The
    Company received $217,000 from its former landlord to terminate its office
    lease. This amount is recognized as other income in the 1995 consolidated
    statement of income. Also included in the income from lease termination is
    $76,322 relating to the reversal of accrued straight line lease adjustments
    offset by a $17,120 loss on the write-off of leasehold improvements.

    As of March 31, 1997, future minimum annual rental payments under
    noncancelable operating leases are as follows:

<TABLE>
<CAPTION>
           Fiscal year
           <S>                         <C> 
           1998                        $  1,347,000
           1999                           1,364,000
           2000                           1,346,000
           2001                           1,338,000
           2002                           1,281,000
           Thereafter                     4,131,000
</TABLE>

7.  Income Taxes:

The provision for income taxes consists of:
<TABLE> 
<CAPTION> 
                               1997          1996           1995
<S>                        <C>             <C>           <C>
Current:
  Federal                  $ 1,295,771     $ 430,818     $ 285,142   
  State and local              508,095       258,580       187,051   
Deferred                       113,060        (7,943)       (4,317)  
                           -----------     -----------------------   
                           $ 1,916,926     $ 681,455     $ 467,876   
                           ===========     =======================   
</TABLE>

    The tax provision for the year ended March 31, 1997 also includes a $236,000
    charge pertaining to a recently completed examination by the Internal
    Revenue Service. 

    The difference between the statutory Federal income tax rate and the
    effective income tax rate is reconciled as follows:
<TABLE>
<CAPTION>
                                                               1997              1996          1995
                                                 
        <S>                                               <C>               <C>            <C> 
        Statutory Federal income tax rate provision       $  1,267,730      $  480,700     $  353,196   
        State and local taxes, net of Federal benefit          335,342         170,663        123,454   
        Non deductible expenses                                 52,000                                
        Prior year income taxes                                236,000                                
        Other                                                   25,854          30,092         (8,774)   
                                                          ------------      ----------     ----------   
                                                          $  1,916,926      $  681,455     $  467,876   
                                                          ============      ==========     ==========   
</TABLE> 

                                       25

<PAGE>
 
Notes to Consolidated Financial Statements, Continued

   The components of deferred tax assets and liabilities as of March 31, 1997
   and 1996, are as follows:

<TABLE> 
<CAPTION> 

         
                                                    1997             1996
          <S>                                    <C>             <C>   
          Current:
            Bad debt reserve                     $       5,910   $       9,682
            Other                                                        3,001
                                                 -------------   -------------
              Net current asset                          5,910          12,683
                                                 -------------   -------------

         Noncurrent:
            Straight-lining rent payments               56,559         -
            Fixed and intangible assets               (134,862)        -
                                                 -------------    ------------
              Net noncurrent liability                 (78,303)        -
                                                 -------------   -------------
         Net deferred tax asset (liability)      $     (72,393)  $      12,633
                                                 =============   =============
</TABLE> 



8. Retirement Plans:

   PRI had a noncontributory defined contribution plan covering substantially
   all employees. The Company contributed an amount equal to one percent of
   participants' wages for those individuals who met eligibility requirements.
   Contributions approximated $6,900 for the year ended March 31, 1995.
   Effective November 30, 1995, the plan was terminated. All employee account
   balances were distributed based on their balances as of such date.

   The Company has a 401(k) profit sharing plan, covering substantially all
   employees. Employees can contribute to a maximum of 15% of their earnings up
   to IRS limitations. Contributions can be made by the Company on a
   discretionary basis and vest over a five-year period. Contributions made by
   the Company to the plan for the years ended March 31, 1997, 1996 and 1995
   were not significant.

                                      26
<PAGE>
 
Notes to Consolidated Financial Statements, Continued

9. Stock Plans:

   Stock Option Plan

   In August 1991, the shareholders of PRI approved the adoption of a Stock
   Option Plan (the "Plan") pursuant to which a maximum 100,000 shares of Common
   Stock were available to be issued for non-qualified options. At March 31,
   1996, fully vested options to acquire 100,000 shares of Common Stock at an
   average price of $.48 per share were issued and outstanding. No options
   issued under the Plan had been exercised or expired through March 31, 1996.
   In connection with the reorganization, the Plan was terminated and all option
   holders exchanged their options for 51,692 options with exercise prices which
   range from $0.35 to $1.22 per share from the newly formed Stock Option and
   Grant Plan of the Company.

   Stock Option and Grant Plan

   The Company's Stock Option and Grant Plan (the "Option Plan') was adopted by
   the Company's Board of Directors as of March 31, 1996 and approved by its
   stockholders on January 16, 1997. Officers, directors, employees, consultants
   and key persons of the Company will be eligible to participate in the Option
   Plan. The Option Plan provides that options for an aggregate of 800,000
   shares of Common Stock are available for award (at a price of no less than
   the fair market value of the underlying stock at grant date) which generally
   vest ratably over three years and expire ten years from the date of grant. On
   January 24, 1997, the Company granted 316,841 options at an exercise price of
   $6.50.

   Stock Purchase Plan:

   In January 1997, the Company created an Employee Stock Purchase Plan (the
   "Stock Purchase Plan") which provides for eligible employees to purchase
   shares of Common Stock, at a discount through regular period salary
   reductions of up to 10% of their pre-tax gross compensation. A maximum of
   250,000 shares of Common Stock may be issued under the Stock Purchase Plan.
   Under applicable tax rules, an employee may purchase no more than $25,000 of
   the fair market value worth of common stock in any calendar year and certain
   other tax limitations may apply. The Stock Purchase Plan is intended to
   qualify as an employee stock purchase plan as defined in Section 423 of the
   Internal Revenue Service Code.

   Directors' Stock Option Plan

   In January 1997, the Company adopted a stock option and grant plan for non-
   employee directors pursuant to which options to acquire a maximum aggregate
   of 50,000 shares of Common Stock may be granted to non-employee directors.
   The options issued vest ratably over three years, expire ten years from grant
   date and cannot have exercise prices less than the fair market value of the
   Common Stock on date of grant. On January 15, 1997, 25,000 options were
   granted and are exercisable at $6.50 per share.


                                      27
<PAGE>
 
Notes to Consolidated Financial Statements, Continued

   Summary of Options

   A summary of stock option transactions for the year ended March 31, 1997 and
   1996 is as follows:

<TABLE> 
<CAPTION> 


                                                                       1997               1996

            <S>                                                   <C>                 <C> 
            Outstanding at April 1:
              Shares                                                  51,692
              Prices                                              $.35 to $1.22

            Options granted:
              Shares                                                 341,841             51,692
              Price                                                   $6.50           $.35 to $1.22

            Outstanding at March 31, 1997:
              Shares                                                 393,533             51,692
              Prices                                              $.35 to $6.50       $.35 to $1.22

            Options exercisable at March 31, 1997                    176,533             51,692

            Options available for future grant at March 31, 1997     456,467
</TABLE> 



   For the years ended March 31, 1997 and 1996, no options were exercised or
   expired.

   As discussed in Note 1, the Company has applied the disclosure-only provision
   for SFAS 123. Had compensation cost been determined based on the fair value
   at the grant date consistent with the provisions of SFAS 123, the Company's
   net income and earnings per share would have been reduced to the pro forma
   amounts indicated below for the years ended March 31, 1997 and 1996:

<TABLE> 
<CAPTION> 
                                                                               1997             1996

         <S>                                                              <C>              <C> 
         Net income attributable to common
            shareholders as reported                                      $    1,811,692   $      732,369
                                                                          ==============   ==============
         Unaudited pro forma net income                                   $    1,740,357   $      732,369
                                                                          ==============   ==============
         Net income per share as reported                                 $         0.39   $         0.16
                                                                          ==============   ==============
         Unaudited pro forma net income per share                         $         0.37   $         0.16
                                                                          ==============   ==============

</TABLE> 


   The weighted average fair value of each option has been estimated on the date
   of grant using the Black-Scholes options pricing model with the following
   weighted average assumptions used for grants in 1997 and 1996, respectively:
   no dividend yield; expected volatility of 40%; risk-free interest rate
   (ranging from 5.86% - 6.37%); and expected lives ranging from approximately 3
   to 5 years. The weighted average fair value of options granted was $2.64 and
   $.42 at March 31, 1997 and 1996, respectively.

                                      28
<PAGE>
 
Notes to Consolidated Financial Statements, Continued


   The following table summarizes information about stock options outstanding at
   March 31, 1997:

<TABLE> 
<CAPTION> 

                                                          Weighted
                                                           Average                                  Weighted
                 Range of                                 Remaining                                 Average
                 Exercise             Shares             Contractual           Shares             Exercisable
                  Prices            Outstanding             Life            Exercisable              Price
            <S>                     <C>                  <C>                <C>               <C> 
            $      0.35                    25,846            9                   25,846       $       0.35
                   1.22                    25,846            9                   25,846               1.22
                   6.50                   341,841           9.8                 139,910               6.5
                                 ----------------       ------------      -------------       ---------------  
                .35 to 6.50               393,533            9                  191,602               5.75

</TABLE> 


10. Stock Dividend:

    The Company's Board of Directors declared an approximately 1.06 for 1 stock
    split effective January 15, 1997. All references in the consolidated
    financial statements to shares of Common Stock have been retroactively
    adjusted to reflect this stock split.



11. Employment Agreements:

    In January 1997, the Company entered into employment agreements with three
    key executives that expire on the third anniversary of the date upon which
    the Company notifies the executive of the Company's intention to terminate
    (except in the case of termination due to cause) their employment. The
    agreements provide for aggregate salaries of $750,000 per annum plus fringe
    benefits and an annual bonus to be determined by the Board of Directors.
    Each employment agreement includes a covenant not to compete with the
    Company for a period of three years after employment ceases.



12. Fair Value of Financial Instruments:

    Cash and cash equivalents, variable rate notes payable and notes receivable
    from stockholders are reflected in the accompanying balance sheet at amounts
    considered by management to reasonably approximate fair value. The Company
    estimates the fair value of its notes receivable and payable using
    discounted cash flow analyses based upon current interest rates of notes
    with similar maturities.

                                      29
<PAGE>
 
ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL
          DISCLOSURE

              None.




                                   PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

      The following table sets forth information concerning the executive 
officers and directors of the Company:

<TABLE>
<CAPTION>

Name                           Age                    Position
----                           ---                    --------
<S>                            <C>     <C>
Bernard F. Reynolds..........  55      Chairman of the Board and Chief Executive Officer
Eli Salig....................  48      President and Chief Operating Officer, Director
Seymour Adler, Ph.D..........  49      Executive Vice President, Director
Michael J. Mele..............  43      Vice President and Chief Financial Officer
William B. Fucarino..........  35      President, Proudfoot Reports Incorporated
David Tory...................  54      Director
Michael J. Boylan............  50      Director
Ilan Kaufthal................  49      Director
Carl Seldin Koerner, Esq.....  47      Secretary and Director
Dennis L. Stevens............  45      Vice President, Marketing and Sales
Paul Squires, Ph.D...........  45      Vice President, Training and Development Services
</TABLE>

                                       30

<PAGE>
 
       Bernard F. Reynolds co-founded the Company in 1978.  Prior to that time,
Mr. Reynolds held positions as a Senior Officer and Director Human Resources and
Training at Dean Witter Reynolds, Inc. and Bache and Company Incorporated. Mr.
Reynolds is a former Chairman of the Wall Street Human Resource Directors
Association, and has served on the Human Resources Management Committee of the
Securities Industry Association.

       Eli Salig co-founded the Company in 1978.  Previously Mr. Salig worked in
Human Resources and Training at Dean Witter Reynolds, Inc. and immediately prior
to founding the Company, Mr. Salig was a Vice President and a Director of
Corporate Personnel at Dean Witter Reynolds, Inc.

       Seymour Adler, Ph.D. co-founded the Company in 1978.  Prior to Dr.
Adler's present assignments he served as Vice President, Research and
Development at the Company. In addition to having served as a consultant to
industry throughout his professional career, Dr. Adler has been on the faculties
of the City University of New York, Purdue University, and Stevens Institute of
Technology. He is currently an adjunct Professor at New York University.

       Michael J. Mele joined the Company in 1997 and currently serves as Vice
President and Chief Financial Officer. Prior to joining the Company, Mr. Mele
held senior financial positions with Linotype-Hell Company, Daimler Benz and
Mars, Inc.

       William B. Fucarino served as Controller and Chief Financial Officer of
the Company from 1991 until 1997 when he was named President of Proudfoot
Reports, Incorporated, the Company's background investigation unit. Prior to
joining the Company, Mr. Fucarino was employed as a General Practice Manager
with Coopers & Lybrand.

       David Tory joined the Company in 1996 as a Director.  Currently, Mr. Tory
acts as an independent consultant to industry. From 1988 through 1995 Mr. Tory
was employed as President and Chief Executive Officer of The Open Software
Foundation, a non-profit consortium comprised of major computer hardware and
software companies and user organizations. From 1978 to 1988, Mr. Tory was
employed by Computer Associates, Inc. in Europe and the United States. Mr. Tory
is a member of the Board of Directors of Ross Systems Inc.

       Michael J. Boylan joined the Company in 1996 as a Director.  He is the
Vice Chairman-Publishing Operations of American Media, Inc., a leading publisher
in the field of personality journalism. Mr. Boylan is also currently employed as
President of MacFadden Publishing, Inc., a privately held New York based firm
which publishes a variety of trade and consumer titles.

       Ilan Kaufthal joined the Company in 1996 as a Director.  Mr. Kaufthal is
Managing Director and head of Mergers and Acquisitions for the Investment
Banking Department of Schroder Wertheim & Co., Inc. Mr. Kaufthal joined Schroder
Wertheim & Co., Inc. in February 1987 and is a member of its Executive
Committee. Prior to joining Schroder Wertheim & Co., Inc., Mr. Kaufthal was
employed by NL Industries Inc., where he served as its Senior Vice President and
Chief Financial Officer. Mr. Kaufthal is a member of the Boards of Directors of
Cambrex Corporation, United Retail Group, Inc., Rexene Corporation and Russ
Berrie and Company, Inc.

       Carl Seldin Koerner, Esq. joined the Company in 1996 as a Director and
Secretary. Mr. Koerner is a partner in the law firm of Koerner Silberberg &
Weiner, LLP, counsel to the Company.

       Dennis L. Stevens joined the Company in 1995.  Prior to joining the
Company, Mr. Stevens served for two years as Managing Director, Marketing and
Communications in the Consulting Services division at Price Waterhouse L.L.P.
From 1980 to 1993 Mr. Stevens was a Vice President of Marketing at American
Express Travel Related Services Inc., with overall management responsibility for
product management, new product development, advertising and research.

                                       31

<PAGE>
 
        Paul Squires, Ph.D. joined the Company in 1996.  Prior to joining the 
Company, from 1979 to 1996 Dr. Squires held senior positions at AT&T Corporate 
Human Resources with primary responsibility for selection, testing and employee 
development.  In 1995, Dr. Squires was Director of Lucent Technologies 
Microelectronics International University, responsible for developing a single 
World-wide training organization which provided support to 18,000 employees.  
Dr. Squires has served as an adjunct professor at Stevens Institute of 
Technology since 1986.



                                      32
<PAGE>
 
ITEM 11.  EXECUTIVE COMPENSATION

    The following table sets forth the annual and long-term compensation
provided by the Company during fiscal 1997, 1996 and 1995 to the Company's Chief
Executive Officer and the four other most highly paid executive officers of the
Company during fiscal 1997 (collectively, the "Named Executives"):

                           Summary Compensation Table
<TABLE>
<CAPTION>
 
                                                                                               Long-Term
                                                           Annual Compensation                Compensation
                                                        -------------------------             -------------
                                                                                                 Awards
                                                                                                 ------
                                                                                               Securities
                                                                                               Underlying
Name and Principal Position               Year          Salary($)(1)      Bonus($)             Options (#)
---------------------------               ----          ------------      -------              ----------
<S>                                       <C>           <C>               <C>                 <C> 
Bernard F. Reynolds..............         1997            237,169         135,000                      0  
   Chairman of the Board                  1996            237,169          30,000                      0  
   and Chief Executive Officer                                                                            
                                                                                                          
Eli Salig........................         1997            237,169               0                      0  
  President and Chief Operating           1996            237,169          20,000                      0  
  Officer                                                                                                 
                                                                                                          
Seymour Adler, Ph.D..............         1997            240,000               0                124,841  
   Executive Vice President               1996            223,332          25,000                      0  
                                                                                                          
William B. Fucarino..............         1997            120,785               0                 20,000  
   Vice President and Chief               1996             87,500          30,000                 25,846(2)
   Financial Officer                                  
                                                      
Dennis Stevens...................         1997            171,879          45,830                 10,000
 Vice President and Director              1996            106,250               0                      0
 of Marketing and Sales
</TABLE>
-----------------------------

(1)  Annual salary for the year commencing April 1, 1997 and ending March 31,
     1998 will be $260,000, $250,000 and $240,000 for Messrs. Reynolds, Salig
     and Adler, respectively.

(2)  Represents options received in connection with the Reorganization.  See
     "Management's Discussion and Analysis of Financial Condition and Results of
     Operations--Overview" under Item 7 of Part II hereof.


                       Option Grants in Last Fiscal Year

    The following table sets forth certain information with respect to stock
options granted during fiscal 1997 to the Named Executives. No stock
appreciation rights ("SARs") have been granted.
<TABLE>
<CAPTION>
 
                                                                                                      
                                                            Individual Grants                           Potential Realizable Value
                                  -------------------------------------------------------------------    at Assumed Annual Rates
                                    Number of         Percent of Total                                  of Stock Price Appreciation
                                 Shares of Common    Options Granted to                                     for Option Term(1)
                                 Stock Underlying       Employees in      Exercise Price   Expiration   -------------------------
                                Options Granted (#)     Fiscal Year      Per Share ($/Sh)     Date          5%            10%
                                -------------------  ----------------    ---------------     ------        ----          -----
<S>                             <C>                  <C>                 <C>               <C>            <C>          <C> 
Bernard F. Reynolds........               --              --                    --             --           --             --       
Eli Salig..................               --              --                    --             --           --             --       
Seymour Adler, Ph.D........           124,841            39.4%               $6.50(2)        1/15/07      510,327      1,293,269    
William B. Fucarino........            20,000             6.3%               $6.50(2)        1/15/07       81,756        207,187    
Dennis Stevens.............            10,000             3.2%               $6.50(2)        1/15/07       40,878        103,593    

</TABLE>
----------------------

(1)  This column shows the hypothetical gains or "option spreads" of the
     options granted based on assumed annual compound stock appreciation rates
     of 5% and 10% over the full 10-year term of the options. The 5% and 10%
     assumed rates of appreciation are mandated by the rules

                                       33

<PAGE>
 
     of the Securities and Exchange Commission (the "SEC") and do not represent
     the Company's estimate or projection of future Common Stock prices.

(2)  The options were granted prior to the Offering which occurred on April 16,
     1997.  The price of Common Stock purchased pursuant to the Offering was
     $6.00 per share.

                Aggregated Options Exercisable and Unexercisable
              at Fiscal Year End and Fiscal Year End Option Values

    The following table summarizes the number and value of options held by each
of the Named Executives at fiscal year end 1997. No options were exercised
during fiscal year 1997 and no SARs have been granted by the Company.

                         Fiscal Year-End Option Values
<TABLE>
<CAPTION>

                                          Number of Securities                    Value of Unexercised
                                         Underlying Unexercised                       In-The-Money
                                            Options at Fiscal                      Options at Fiscal
                                              Year-End (#)                          Year-End ($) (1)
                                   -----------------------------------        -----------------------------
 Name                              Exercisable           Unexercisable        Exercisable     Unexercisable
-----                              -----------           -------------        -----------     -------------
<S>                                <C>                   <C>                  <C>             <C>

Bernard F. Reynolds............          --                     --                    --           --
Eli Salig......................          --                     --                    --           --
Seymour Adler, Ph.D............      124,841                    --                     0           --
William B. Fucarino............       25,846                 20,000              123,544            0
Dennis Stevens.................          --                  10,000                   --            0
</TABLE>
-------------------

(1)  Prior to the Offering, the Common Stock of the Company was not publicly
     traded.  The Company has assumed for purposes of this table that the fair
     market value of Common Stock on March 31, 1997 was equal to the Offering
     price of $6.00 per share.

Director Compensation

    Directors are reimbursed for certain expenses incurred by them in connection
with attendance at meetings of the Board and committees thereof. Other than with
respect to reimbursement of expenses, directors, who are also employees or
officers of the Company, do not receive cash compensation for services as a
director.

Directors' Stock Option Plan

    The 1996 Directors' Stock Option Plan (the "Directors Plan") was adopted by
the Company's Board of Directors and approved by its stockholders on January 15,
1997. Under the Directors' Plan, options to acquire an aggregate of 50,000
shares of Common Stock may be granted. Each member of the Board of Directors who
is not an employee of the Company or a subsidiary thereof shall automatically be
granted an option to acquire 5,000 shares of Common Stock on the first day such
individual serves as a director. In addition, each director who is appointed
chairperson of a committee of the Board of Directors shall receive an option to
purchase 2,500 shares of Common Stock upon his appointment to such committee.
Such options will vest ratably over three years, provided that any option so
granted will become immediately exercisable in full upon the termination of
service of the director because of disability or death. Options issued under the
Directors' Plan will expire ten years from the date upon which such option is
granted.

Employment Agreements

    The Company has executive employment agreements with Bernard F. Reynolds,
Eli Salig and Seymour Adler, each an "Executive." The annual base salaries of
Messrs. Reynolds, Salig and Adler under their employment agreements are
$260,000, $250,000 and $240,000, respectively. Each Executive is entitled to
fringe

                                       34

<PAGE>
 
benefits and an annual bonus to be determined by the Board of Directors. Each
Executive can be terminated for cause (as defined in the employment agreements)
with all future compensation ceasing. If the Executive is terminated without
cause, dies during the term, or is unable to competently and continuously
perform the duties assigned to him because of ill health or other disability (as
defined in the employment agreements), the Executive or the Executive's estate
or beneficiaries shall be entitled to full compensation for three years
following the date thereof. If the Executive resigns, his compensation ceases as
of the date of his resignation. During the period of employment and for a period
of three years thereafter, the Executives are prohibited from competing with the
Company. In order for a restrictive covenant to be enforceable under applicable
state law, the covenant must be limited in terms of scope and duration. While
the Company believes that the covenants in the employment contracts are
enforceable, there can be no assurance that a court will declare them to be
enforceable under particular circumstances.

Compensation Committee Interlocks

    The Compensation Committee consisted of Messrs. Boylan, Kaufthal and Koerner
in fiscal 1997. This committee reviews and approves the compensation system for
the Company. In addition to serving on the Compensation Committee, Mr. Koerner
is also a managing partner of the law firm of Koerner Silberberg & Weiner, LLP
which has served as counsel to the Company. For additional information regarding
this relationship please refer to Item 13.

                                       35

<PAGE>
 
ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT


    The following table sets forth, to the best knowledge and belief of the
Company, certain information regarding the beneficial ownership of the Company's
Common Stock by (i) each person who is known by the Company to beneficially own
more than five percent of the Company's Common Stock, (ii) each of the Company's
directors, (iii) each Named Executive and (iv) the Company's directors and
executive officers as a group. Except as otherwise noted, the information in the
following table is provided as of June 17, 1997.

<TABLE>
<CAPTION>
 
 
                                                   Shares of         
                                                     Common
                                                     Stock       Percentage of
                                                 Beneficially     Outstanding
Name of Beneficial Owner                           Owned(1)       Common Stock
------------------------                        ---------------  --------------
<S>                                              <C>             <C> 
Bernard F. Reynolds (2)..................          2,584,412         40.5%     
Eli Salig................................          1,176,824         18.5%     
Seymour Adler, Ph.D.(3)..................            340,319          5.3%     
William B. Fucarino (4)..................             27,346             *     
David Tory...............................             10,000             *     
Michael J. Boylan........................             10,000             *     
Ilan Kaufthal............................                --            --      
Carl Seldin Koerner, Esq.................                500             *     
Dennis Stevens...........................                --            --      
All directors and executive officers as                                        
 a group (10 persons)....................          4,151,901         65.1%     
</TABLE>

------------

*   Less than 1%

(1) Unless otherwise noted in the footnotes to this table, the individuals
    listed have sole voting and investment power with respect to all shares of
    Common Stock shown as beneficially owned by them.
(2) Includes shares currently owned by Mr. Reynolds which may become part
    of a trust for which Mr. Reynolds will be trustee.
(3) Includes 124,841 shares subject to currently exercisable stock options.
(4) Includes 25,846 shares subject to currently exercisable stock options.

                                       36

<PAGE>
 
ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Officer Loans

    During fiscal 1996, the Company loaned $233,519, $112,617 and $17,597 to
Messrs. Reynolds, Salig and Adler, respectively. The loans were evidenced by 5-
year notes bearing interest at the rate of 7% repaid per annum and requiring
equal annual principal payments over the term of the notes. On May 21, 1997,
Messrs. Reynolds, Salig and Adler transferred 45,534 shares of the Company's
Common Stock owned by them to the Company in full satisfaction of these notes.
The fair market value of the Common Stock transferred was equal to the principal
plus accrued interest outstanding, based upon a closing price for the Company's
Common Stock of $8.625 per share as reported on the Nasdaq National Market at
the end of trading on May 21, 1997.

Release of Guarantees

    Messrs. Reynolds and Salig personally guaranteed the Company's indebtedness
under its bank credit facility which matures in September 1997. The Company
repaid this indebtedness in full with the proceeds of the Offering and has a
commitment to replace its existing bank credit facility with a new facility that
provides up to $10.0 million in availability. The Company's lender has agreed to
release the personal guarantees of Mr. Reynolds and Salig in conjunction with
the commencement of the new credit facility.

Registration Rights Agreement

    The Company entered into a Registration Rights Agreement with Bernard F.
Reynolds, Eli Salig and Seymour Adler, dated as of January 15, 1997 (the
"Registration Rights Agreement"). The Registration Rights Agreement provides
that Messrs. Reynolds, Salig and Adler are entitled to demand and incidental
registration rights.

Interest of Counsel

    Carl Seldin Koerner, a director and secretary of the Company, is a managing
partner of the law firm of Koerner Silberberg & Weiner, LLP. Such firm has been
general counsel to the Company since 1989 and acted as counsel to the Company in
connection with the Offering. In fiscal 1997, the Company paid legal fees of
$400,000 to Koerner, Silberberg & Weiner, LLP. The Company believes that the
fees paid are comparable to those fees that would have been paid to an unrelated
third party law firm. Pursuant to the Directors' Plan on January 15, 1997, Mr.
Koerner was granted an option to purchase 5,000 shares of Common Stock. The
option is exercisable at $6.50 per share and vests ratably over three years.


                                    PART IV

Item 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES
          AND REPORTS ON FORM 8-K
 

(a)   List of documents filed as part of this report:

  (1) Financial Statements and Supplementary Data
      -------------------------------------------

      See Index to Consolidated Financial Statements under Item 8 in Part II
      hereof.

  (2) Exhibits
      --------

      See (c) below.

                                       37

<PAGE>
 
(b) Reports on Form 8-K.
    ------------------- 

    The Company did not file any reports on Form 8-K during the last quarter of
    the period covered by this report.


(c) Exhibits
    --------

    Exhibit
    Number                       Description
    ------                       -----------

       3.1     First Restated Certificate of Incorporation of the Company
       3.2     By-laws of the Company
      *4.1    Specimen of Common Stock Certificate
      10.1    Warrant Agreement by and between the Company and H.C.
              Wainwright & Co., Inc.
     *10.2    Registration Rights Agreement between the Company, Bernard F.
              Reynolds, Eli Salig and Seymour Adler, Ph.D.
      10.3    Stock Option and Grant Plan of the Company
      10.4    Director's Stock Option Plan of the Company
      10.5    Employee Stock Purchase Plan of the Company
     *10.6    Employment Agreement between the Company and Bernard F. Reynolds
     *10.7    Employment Agreement between the Company and Eli Salig
     *10.8    Employment Agreement between the Company and Seymour Adler, Ph.D.
     *10.9    Sublease dated July 2, 1996 between Assessment Solutions and Nikon
              Inc. regarding the space at 1300 Walt Whitman Road, Melville, 
              New York
     *10.10   Lease dated January 27, 1984 between Assessment Solutions and 780
              Third Avenue Associates regarding the space at 780 Third Avenue,
              New York, New York, and the Third Amendment to the lease dated
              August 7, 1996 by and among Assessment Solutions, Proudfoot and
              780 Third Avenue Associates
     *10.11   Sublease dated October 6, 1994 between Proudfoot and Nikon, Inc.
              regarding the space at 1300 Walt Whitman Road, Melville, New York,
              and the Amendment to the sublease, dated July 2, 1996
     *10.12   Lease dated January 25, 1996 between Assessment Solutions and
              Pruneyard Associates regarding the space at 1999 South Bascom
              Avenue, Campbell, California
     *10.13   Commitment letter dated March 3, 1997 between the Company and
              Fleet Bank, N.A.
    *+10.14   Agreement by and between Assessment Solutions and Telesector
              Resources Group, Inc. ("NYNEX")
     *21.1    List of Subsidiaries of the Company
      27.1    Financial Data Schedule

------------------------
    *   Incorporated by reference to the relevant exhibit to the Company's
        Registration Statement on Form S-1 filed with the Securities and
        Exchange Commission on January 24, 1997, as amended, Registration No.
        333-20401.

    +   Confidential treatment was granted as to a portion of this document by
        order of the SEC on April 9, 1997.

                                       38

<PAGE>
 
Note: In November of 1996, Assessment Systems, Inc. changed its name to
Assessment Solutions. Consequently, all references herein to Assessment
Solutions are intended to also refer to Assessment Systems, Inc.

                                       39

<PAGE>
 
                                  SIGNATURES

    Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                      ASI SOLUTIONS INCORPORATED


                                      By: /s/ Eli Salig
                                         ---------------------------------------
                                         Eli Salig
                                         President and Chief Operating Officer


Dated: June 24, 1997
      

    Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE> 
<CAPTION> 

       Signature                  Title                             Date
       ---------                  -----                             ----
<S>                      <C>                                   <C> 

/s/ Bernard F. Reynolds  Chairman of the Board and Chief        June 24, 1997
-----------------------  Executive Officer (Principal          ----------------
Bernard F. Reynolds      Executive Officer)

/s/ Eli Salig            President and Chief Operating          June 24, 1997
-----------------------  Officer (Principal Executive          ----------------
Eli Salig                Officer) and Director

/s/ Seymour Adler        Executive Vice President and           June 24, 1997
-----------------------  Director                              ----------------
Seymour Adler

/s/ Michael J. Mele      Vice President and Chief Financial     June 24, 1997   
-----------------------  Officer (Principal Financial and      ----------------
Michael J. Mele          Accounting Officer)

/s/ David Tory           Director                               June 24, 1997
-----------------------                                        ----------------
David Tory

/s/ Michael J. Boylan    Director                               June 24, 1997
-----------------------                                        ----------------
Michael J. Boylan

/s/ Ilan Kaufthal        Director                               June 24, 1997
-----------------------                                        ----------------
Ilan Kaufthal

/s/ Carl Seldin Koerner  Secretary and Director                 June 24, 1997
-----------------------                                        ----------------
Carl Seldin Koerner
</TABLE> 


                                      40